With the novel coronavirus pandemic, most investments are seeing red for obvious reasons. A lucky few, such as Teladoc Health (NYSE:TDOC), have witnessed a surge due to the panic promoting a previously underappreciated bullish thesis. Then there is United Parcel Service (NYSE:UPS). Although the courier service has been extraordinarily relevant during this troubled time, UPS stock is down significantly for the year. It turns out, the volatility isn’t exactly unwarranted.
In my opinion, Wall Street is having a rough time assessing where UPS stock will end up, both in the near term and following this awful crisis. Over the next few sessions, we should expect turbulence. While couriers and the broader delivery services industry have become a conspicuously crucial component of our now-strained supply chain networks — for the record, it’s always been crucial — it also has several challenges to overcome.
Let’s start with the positives. Initially, many people voluntarily sheltered themselves when coronavirus cases worsened. Later, California, followed by several other states, issued mandatory shelter-in-place orders. With nowhere to go by law, most Americans have no choice but to use online shopping for their needs. Logically, this circumstance bolsters the buy case for UPS stock.
Furthermore, courier services represent an important cog in structural normalcy. For many folks, the sudden onset of stay-at-home orders have imposed substantial pressures on mental health. We humans are social creatures. Therefore, being forcibly stuck in our homes, many have been left with cabin fever.
Believe me, I know the feeling.
Fortunately, logging onto Amazon (NASDAQ:AMZN) or any other e-commerce platform provides us with some connection to prior (normal) paradigms. Undoubtedly, this has benefited UPS stock, but can this sentiment last?
UPS Stock and the Human Factor
One of the main talking points in the current political season was automation. Former Democratic presidential candidate Andrew Yang — remember that guy? — routinely talked about its threat to American workers. It represented the catalyst for why Yang supported what he termed a “freedom dividend.”
Predictably, conservatives dismissed the idea as blatant socialism. However, they’re not laughing anymore.
Interestingly, Yang ran on a platform called “Humanity First.” Essentially, we’ve got to rid ourselves of anachronistic policies that put corporate profits ahead of people. And this principle is exactly where UPS stock and similar investments like FedEx (NYSE:FDX) may have a PR risk.
Although many workers within the goods delivery supply chain are honored to serve their communities and country in this hour of tremendous need, a growing number also resent the risks they’re under. While most Americans are sheltered in their homes, delivery truck drivers are out on the frontlines, crisscrossing through one lockdown zone to another. By the law of averages, you’d expect many of them to get sick. Sadly, that’s exactly what’s happening.
In an announcement, FedEx disclosed that they have “a small number” of workers getting Covid-19. According to Bloomberg, UPS won’t disclose their stats due to “privacy reasons.”
To be fair, both UPS and FedEx have made accommodations — such as suspending signatures for packages — to protect their workers. Yet a Teamsters branch in Pennsylvania “accused UPS of failing to provide employees with gloves, masks and hand sanitizer — or even a working bathroom in one location.”
Obviously, such accusations aren’t favorable optically. But another pressing problem is worker discontent. Let’s be real: even under the best of circumstances, truck driving has never been easy. But with the coronavirus? The industry risks employee churn at the worst possible time.
What About the Economy?
Despite the delivery and transportation industry’s myriad challenges, I can understand the temptation for UPS stock. No one will deny that UPS and its competitors are valuable services. Additionally, the company pays a dividend, which may help even out the volatility.
Therefore, I’m not against taking a modest position with UPS stock at these prices. However, I reserve some skepticism. In my opinion, we risk seeing further declines in this sector.
In a worrying announcement, economic experts predict that job losses could total 47 million, translating to 32% unemployment. Contrarians have put a positive twist to this estimate, suggesting that it’s a temporary moment of acute pain. From there, we will bounce right back up.
Really? I’m not sure what economic model can absorb 47 million job losses as a blip on the radar. And if we do have such a scenario play out on a prolonged basis, I don’t see UPS or anyone in the sector doing well. In such circumstances, consumers will go into survival mode.
Ultimately, I’m unconvinced. I’m not saying anything bad about UPS. Rather, I believe investors should recognize the awful reality we’re living in.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.